It's Not Enough

Fears that the United States is on the cusp of a Japanese-style "lost decade" are grossly overstated: We've already had it—from 2000-2010. Sure, the last two years of the decade were defined by a cataclysm of historic proportions that almost made us forget the bad news of the prior eight years.

In addressing the economic meltdown, we embraced remarkable policy responses that addressed the cataclysm but did not deal with the much deeper and more troubling crisis of our already ended lost decade. We confronted the immediate catastrophe, but not the trend line. That trend line is the cause of the justifiable anxiety of the American public.

We resolved the cataclysm by shoveling gobs of money into the financial services sector, consolidating it into a few too-big-to-fail federally guaranteed entities. But we did little or nothing to confront the job loss, income stagnation, and consequential security loss felt by the middle class, dating not just to 2008, but much further back.

Consider these data (the most recent available), which explain the fear in the middle class:

As President Obama continues to struggle with imposing the structural reforms needed to alter the trend line, the public's patience has run out. Americans have yet to feel the impact of slow-moving changes he has set in motion. The successes he points to—legislative enactments that are in fact central to the democratic agenda—simply do not touch the root causes of the current anxiety. Few people have had their lives changed by the health care reform bill, despite provisions that are hugely important, such as prohibition of denial of health coverage for pre-existing conditions. And the financial re-regulation bill is little more than a maze of words to most people, who still see Wall Street bonuses flowing unabated like champagne at a Gatsby party.

President Obama's vision of a green/tech/innovation-driven/manufacturing recovery is perhaps the best one possible. It presupposes the critical investments in human capital and infrastructure to make us competitive internationally—and also a critical currency realignment that will permit fair trade. The "race to the top" in education—though small in dollars compared with many other endeavors—is the start of a larger federal push to transform educational rules and priorities in fundamental ways. The energy department efforts on solar and alternative are real, but small.

Yet the administration has not even attempted the grand bargain: a significant carbon tax to pay for a massive reduction of the payroll tax, thereby stimulating hiring; a real agreement by China to revalue its currency in return for access to U.S. markets; another significant uptick in auto efficiency rules in return for a massive federal investment in the research and development and infrastructure for domestically produced electric cars.

Without this bargain, two inexorable trends will continue. The United States will continue losing economic ground to the rest of the world. And the middle class will continue losing ground to the rich. The fear created by these two trends explains the appeal of Sarah Palin, Glenn Beck, and the Tea Party—even though their populist rhetoric masks a naked faith in markets that is likely to exacerbate economic inequality, stagnant wages, and joblessness.

The grand irony is that globalization and the economic trend lines of the past several decades have, in fact, lifted hundreds of millions of people out of poverty and seen a more dramatic increase in the standard of living for a much larger percentage of the world population than ever before. The problem for the United States is that the winners, so far, are elsewhere. The politics of resentment, despite its cynical short-term appeal, will only push the United States further behind.

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